U.S. Stocks Soar, but Treasuries Plunge to “Trump’s Bond Bottom” — What’s Behind the Disconnect?

TradingKey - As the S&P 500 recovers all losses caused by Trump’s new tariff announcements and the Nasdaq enters bull territory, U.S. bonds — also dollar-denominated assets — have notably lagged behind. Of particular concern is that the yield on the 10-year Treasury note has recently surged above 4.5%, a level last seen when Trump "backed down" from his market-threatening policies.

On Wednesday, May 14, the yield on the 10-year Treasury once again crossed the 4.5% threshold for the first time in a month, while the 30-year Treasury yield approached the 5% mark. The continued decline in U.S. bond prices has sparked growing concern across financial markets.

The last time the 10-year Treasury yield was at 4.5% was during early April, when President Donald Trump announced his so-called reciprocal tariffs. At that time, fears of a U.S. or even global economic slowdown, along with shaken confidence in the stability of U.S. policy, triggered a wave of selling in dollar-denominated assets — including U.S. Treasuries — as investors sought safer havens.

The collapse in the bond market put immense pressure on Trump, especially since the ultimate goal of his controversial tariff policies appeared to be aimed at addressing debt issues. Consequently, after less than a day of implementing the tariffs, Trump quickly reversed course, offering a 90-day suspension period on tariffs to key trading partners.

Last month, escalating trade war tensions led to a triple sell-off in U.S. stocks, bonds, and the dollar. However, even after the U.S. and China reached a tariff agreement in Geneva, U.S. bonds failed to rebound in tandem with equities.

According to many market observers, the recent plunge in Treasuries reflects expectations that the Federal Reserve will further delay its rate cut timeline, with the number of anticipated cuts significantly reduced.

Economist Peter Schiff noted that the U.S. bond market is now on the brink of another collapse. The so-called “bond vigilantes” — investors who protest against unfavorable economic policies by selling government bonds — appear to be making a comeback, this time in response to Trump's proposed “Beautiful Big Bill .”

The “Beautiful Big Bill” refers to Trump’s proposed budget legislation, which includes measures such as tax cuts and immigration restrictions. 

However, the Republican-led budget proposal continues to face scrutiny over whether it can effectively control federal deficits and how it plans to increase fiscal revenues.